Eyes Glazed? Cutting Through The Fiscal TalksYou might be feeling a bit hung over from all the 'fiscal cliff' negotiations. But the financial talks in Washington aren't over yet. In the coming months, the White House and Congress will face three major economic challenges. Host Michel Martin breaks down what you need to know for the next round of fiscal talks.

You might be feeling a bit hung over from all the 'fiscal cliff' negotiations. But the financial talks in Washington aren't over yet. In the coming months, the White House and Congress will face three major economic challenges. Host Michel Martin breaks down what you need to know for the next round of fiscal talks.

MICHEL MARTIN, HOST:

I'm Michel Martin and this is TELL ME MORE from NPR News. Coming up, we are going to head into the Beauty Shop to hear from our panel of women journalists and commentators for a fresh cut on today's news. We'll talk about the Obama administration's second term cabinet picks and the reality TV shows they love to hate. That's coming up.

But first, guess what? More economically important deadlines approaching. Yay. Well, we're sure that many people are all maxed out on the fiscal cliff and all the political gridlock in Washington, D.C. In the coming weeks, the government has three more major items to tackle. We wanted to talk about this, so we've called in two of our NPR pros to break it down for us. Senior business editor Marilyn Geewax is back with us and White House correspondent Scott Horsley.

Welcome back to you both. Thank you for joining us.

SCOTT HORSLEY, BYLINE: Good to be with you.

MARTIN: And Happy New Year.

HORSLEY: Thank you.

MARILYN GEEWAX, BYLINE: Hi.

MARTIN: So Marilyn, I know that a lot of people thought, I thought it was over, but it's not over.

GEEWAX: It's never over.

MARTIN: And the first biggest thing that the government is now confronting is the debt ceiling, and this is something that I think people have heard a lot about over the last couple of months. What is this and why is this back in front of us again?

GEEWAX: Michel, I'm going to go basic with you. Let me just say this. The government, ever year, spends more money than it takes in and those annual deficits add up into this giant debt that compiles year after year. Right now we owe something like $16 trillion to people.

Now, each year Congress has the power to raise the ceiling on how much money Congress can borrow, how much we can take in as a country, and regularly this ceiling gets raised. We've done it about 100 times since 1940. This should be a routine housekeeping measure, but many Republicans are disgusted with government spending. They feel that it's way out of control and they want to use this opportunity as a way to force cuts in spending, but the bottom line on all of this is that it just has to be done. The reason it's been done scores and scores of times is because the alternative would be so terrible. If the federal government couldn't borrow more money and it turned to the people who have given it money over the years and said, sorry, pockets are empty, we can't give you anything, it would cause absolute chaos in financial markets.

So we have actually passed our debt ceiling limit, as of the end of last year. Right now the Treasury secretary is doing like the equivalent of reaching around in the couch and looking for spare change. He's cracking open the kids' piggy banks, taking what he calls extraordinary measures to keep going.

MARTIN: But this can't continue.

GEEWAX: It cannot continue and probably about Valentine's Day is D-Day.

MARTIN: OK. That's not a happy thought. Scott Horsley, let's bring you into the conversation. President Obama has staked out a very firm position on the debt ceiling. I'm just going to play a short clip from his weekly address, in case you missed it. Here it is.

PRESIDENT BARACK OBAMA: One thing I will not compromise over is whether or not Congress should pay the tab for a bill they've already racked up. If Congress refuses to give the United States the ability to pay its bills on time, the consequences for the entire global economy could be catastrophic.

MARTIN: Well, translate that for us. I mean he doesn't really have a choice in what he's saying, does he? I mean that's not - this is not exactly discretionary.

HORSLEY: Well, what the president has said is that he's not going to negotiate with the congressional Republicans who are using this need to raise the debt ceiling as a political weapon. What he said is, look, Congress has run up these bills. They've authorized the spending above and beyond what we take in in tax revenue, so it's incumbent on them now to raise the debt ceiling. Republicans will have to vote to do that. Republicans are saying we're not going to do that unless you give us something we want, which is big spending cuts that we otherwise might not be able to win through the legislative process.

The president has described this as basically holding the economy hostage to get what you can't get through the legislative channels and his position has been I'm going to wait the hostage takers out. I'm not going to meet their demands and I'm going to count on the business community and really everybody with a stake in the survival of the U.S. economy or the global economy coming down on the congressional Republicans, putting pressure on them and saying just go ahead and raise the debt ceiling.

The problem for the president is he's in a game of chicken now and he has a reputation of acting responsibly, and if you're in a game of chicken, a reputation for acting responsibly is a liability.

MARTIN: If you're just joining us, you're listening to TELL ME MORE from NPR News. We are listening to NPR's Scott Horsley and Marilyn Geewax. We're talking about the big economic issues that still haven't been resolved, even after all those negotiations around the so-called fiscal cliff.

Marilyn, the second deadline we're facing has this big bureaucratic name, sequestration. Those are the potential spending cuts that Congress set aside that will automatically kick in, and I think it's March. Could you talk about what that's all about?

GEEWAX: This phrase - let me just clarify what sequestration means. It's a weird term, but you may have heard it before in the context of a judge sequestering a jury. You can be - he doesn't kidnap them. He doesn't imprison them. He just has the legal power to set them aside and say you have to stay in a hotel room until this trial is over.

Well, Congress has the power to say to the Treasury we are going to sequester funds that have already been authorized. That is, you can't spend them. We are going to legally hold them back. And Congress had created this sequestration process to force itself to deal with spending cuts, and if they don't take some new action to decide what to spend, these automatic cuts will kick in starting in March and it would be really huge. I mean we're talking big cuts, tens of billions of dollars.

MARTIN: Scott, why don't you tell us more about that? What are some of the things that will - what actually happens? What's on the chopping block?

HORSLEY: Well, these are cuts that were going to kick in on January 1. That's why this was part of the fiscal cliff and is part of the negotiations to avoid going over that cliff. They basically just pushed off the deadline for two months. They said, OK, instead of kicking in on January 1, they'll now kick in on March 1, and they're pretty much across the board, but with this important caveat. The big government health care programs are protected, so you would see spending cuts in everything the government does except payments for people getting Medicare and Medicaid.

The idea here, when this was crafted back in the summer of 2011, was that the sequester would be more onerous for Republicans than for Democrats. The White House cagily crafted the sequester so that Republicans would have more to lose than Democrats would. Their most important programs - in particular, defense spending - is more vulnerable to these spending cuts than the things that are most important to Democrats.

Now, the president, as commander-in-chief, is particularly sensitive about those defense cuts, but a lot of rank and file Democrats in Congress are mostly concerned about the health care spending. So you basically see cuts in everything the government does, with the exception of health care spending, and the cuts would be half in the defense budget and half in everything else. That's education, national parks, you know, keeping the lights on in government buildings, everything else the government spends money on.

MARTIN: Marilyn, how worried are you about this? How worried are the financial markets about this? How worried are, say, federal employees about this?

GEEWAX: It could have an enormous impact on the job market, and as we know, the job market is really the key to the whole economy, but if this sequestration process goes forward as it is now on track to do, you're talking about a loss of something like 800,000 jobs fairly quickly, and really it could spiral a good deal after that, so you might lose millions of jobs this year because of this sequestration. So if you're a defense contractor, you've got a good job, you're working on some aircraft that the military needs, and all of a sudden you go from having a good job to no job and complete uncertainty, it will spin out. It will affect what restaurants you go to, what grocery stores you go to. It will have a tremendous ripple effect on the economy at a time when the jobs recovery is really quite weak.

MARTIN: There's another deadline in March that has the potential to cause a government shutdown. What is that?

GEEWAX: Yes.

MARTIN: Speaking of uncertainty.

GEEWAX: The third one. This one takes effect on March 27. Every year Congress is supposed to pass a budget. They're supposed to have an idea of what we're going to spend and that takes effect on October 1, but each year Congress does not pass that budget because they just have so many squabbles, they just can't do it. They can't come to an agreement.

So since April of 2009, the government has not been running on really a formal full budget, but rather what they call continuing resolutions. They just take the existing budget and just keep moving it along. Well, that current continuing resolution expires on March 27th and a lot of Republicans are saying this time we're not going to continue it. We've got to have a budget.

MARTIN: You know, we just heard President Obama say he's standing firm on the debt ceiling. On the Republican side, Senate Minority Leader Mitch McConnell is saying he's standing firm on a tax issue. This is him speaking on ABC's "This Week." Here it is.

(SOUNDBITE OF TV SHOW, "THIS WEEK")

SENATOR MITCH MCCONNELL: The tax issue is finished, over, completed. That's behind us. Now the question is, what are we going to do about the biggest problem confronting our country, and that's our spending addiction.

MARTIN: Scott, I asked you to translate what President Obama was saying. Will you translate what Mitch McConnell is saying here?

HORSLEY: Well, he's basically said the president got all the tax money he's going to get in the $600 billion that was agreed to to resolve the fiscal cliff, and if the president wants to come back to the well for more tax revenue, think again. The president insists that any additional deficit reduction has to be a balance of both tax increases and spending cuts.

Michel, just to put these kind of three crises in perspective, the sequester would be damaging, but in terms of orders of magnitude, it's survivable. A government shutdown would be more disruptive because it would hit a broader swath of government spending, although essential functions would still be protected. You'd still have air traffic controllers and so forth.

And then failure to raise the debt ceiling would be catastrophic. That would have ripple effects throughout the private sector. It would really drive the economic bus over the cliff.

MARTIN: Final thought, Marilyn?

GEEWAX: You know, there's one thing that I want to make a point about, that this is really about trust. The entire financial system is based on trust. That is, if I have a $100 bill, the truth is it's just a green piece of paper. So all over the world people own the debt of the United States government. It's just a piece of paper. It's meaningless unless they believe, if they have the trust that the government will actually pay them. If you undermine that trust, there's just no telling what chaos would ensue.

MARTIN: Scott, let's get a final word from you. What - speaking of trust, having followed this process...

HORSLEY: Not much of that in Washington these days.

MARTIN: Not much of that in Washington. I was going to ask. What are the dynamics at play here? I mean I think the working assumption is that this is brinksmanship. At the end of the day both parties will figure out how to come to an agreement, which is what happened on the so-called fiscal cliff, even though they wound up kicking some of the issues down the road, as we've been discussing here. What's your sense of the politics of this thing and how this thing is going to unfold over the next couple of weeks?

HORSLEY: Yeah. It is brinksmanship. The stalemate persists and there is a lack of trust, both in the bargaining power of the Democrats and the Republicans, but also the willingness to stand by the lines that have been drawn in the sand. Somebody's going to have to give and neither one trusts that the other one is going to do what they say they do.

MARTIN: Scott Horsley is NPR's White House correspondent. Marilyn Geewax is a senior business editor for NPR. They were both kind enough to join us in our Washington, D.C. studios, and I hope you'll both keep us posted on these important issues as they unfold over the next couple of weeks.

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